[PassedOut]

phil_20686, on 2010-November-19, 08:48, said:

well, my exploration of data series this morning suggests that if America has any non-tax revenue sources, they represent less than one percent of gdp. So I am pleased that, like king knut, I am the winner of this argument

I did not realize that you had changed the terms of the discussion to evade admitting the truth: The Bush tax cuts -- federal tax cuts -- were sold as boosters of economic growth. They failed completely.

[phil_20686]

hrothgar, on 2010-November-19, 09:07, said:

More to the point, you're free to invent whatever bizarre non standard definitions that you like.
Just don't expect people to waste time effort paying attention to you.

Disciplines standardize on vocabularies because it facilitates discussion.
Redefining terms to fit your ideological convictions might feel good, but it cripples your ability to communicate with anyone outside your little cult.

In technical terms to be a tax it must not be tied to a specific provision of service. Most "non tax revenue" in western capitalist nations (ignoring foreign aid) is in the form of fees for specific government services. E.g. "Social insurance" is technically murky under the definition of a tax, but generally considered a tax as the total amount you pay is unrelated to the service you receive. British "Stamp duty" is a fee paid to the government whenever you buy a house. It would technically be considered "non-tax revenue", I could raise the same revenue through a bracketed sales tax, and that would suddenly become tax revenue. In this sense the definition is almost totally academic - indeed Road Tax is not a tax, in the economist's sense. Fees and tolls are normally considered taxes legally even if tied to a specific end, so it gets even more complicated. Of course there are lots of things in Non-tax revenue that are very different. Fines, for example. Printing money. International Aid.

At any rate, My point above was that in the case of the US the various contributions which you might term "very different" from taxes, amount to pocket change, and are therefore not very important. Indeed, even other fees are not a lot of money. The data backs that up. So what is your problem exactly? Actually, I am not sure that I want to know

[PassedOut]

Obfuscation. Ugly.

[phil_20686]

PassedOut, on 2010-November-19, 09:12, said:

I did not realize that you had changed the terms of the discussion to evade admitting the truth: The Bush tax cuts -- federal tax cuts -- were sold as boosters of economic growth. They failed completely.

Sorry. what? My argument was that tax cuts lead to growth, we have established that under bush the tax burden did not decline (on average) despite the federal tax cuts, because of increases in tax at state and local level. Unsurprisingly, the fact that the tax cut that was not did not stimulate growth comes as no surprise, since the tax burden was not actually reduced. I cannot agree that the fact that not cutting taxes did not stimulate growth proves that tax cuts do not stimulate growth.

That was a lot of negatives.

My claim is that tax cuts stimulate growth, and high taxes inhibit growth. here is a graph of US YoY gdp growth:
http://www.tradingec...60-c5072840c142

In so far as there is any long term trend visible, it seems to be that average growth has reduced from 5 to about 3%. but I only put that on by eye. over the same period here is a graph of total government revenue:
http://www.usgovernm...a_a_a_a_a_a_a_b

Which shows a long term upwards trend in the tax burden. As you can clearly see, short term variation in growth is king. You cannot extrapolate from a decade that tax cuts do not stimulate growth. At any rate the tax cuts were small, and if the above correlation is real, then it seems like a 10% (of gdp, 1/3 of government revenue) tax cut would lead to about 2% more growth. At best the bush tax cuts could have expected is a 0.3 or 0.4% extra growth, so the period would have been stagnant anyway, and there is no way to know whether it would have been more stagnant without tax cuts.

[PassedOut]

Recurring discussion:

Ideologue: The solution is cutting taxes.
Realist: It's not that simple.

Later--

Realist: Your tax cuts failed to solve the problem.
Ideologue: It's not that simple.

Rinse and repeat.

The problem being discussed in this thread is the US federal deficit. This problem cannot be solved by cutting taxes, all free lunch growth arguments notwithstanding.

It can only be solved by matching spending and taxes. Once the spending requirements are set (whether or not I agree with the wisdom of that spending), the taxes must be set to align with that spending.

[phil_20686]

PassedOut, on 2010-November-19, 10:40, said:

Recurring discussion:

Ideologue: The solution is cutting taxes.
Realist: It's not that simple.

Later--

Realist: Your tax cuts failed to solve the problem.
Ideologue: It's not that simple.

Rinse and repeat.

The problem being discussed in this thread is the US federal deficit. This problem cannot be solved solely by cutting taxes, all free lunch growth arguments notwithstanding.

It can only be solved by matching spending and taxes. Once the spending requirements are set (whether or not I agree with the wisdom of that spending), the taxes must be set to align with that spending.

Lol this is so comical. No one on this board as argued that cutting taxes will help the us deficit - i.e. raise tax revenue. Clearly taxes should match spending over an economic cycle, although small (ie less than growth in a given year) deficits are an acceptable long term plan. Most of the argument has been about whether cutting taxes increases growth - an entirely separate issue. This started when awm produced some data showing apparent correlation between higher tax and more growth.
As kenberg is so fond of saying: There ain't no free lunch. You cannot raise taxes now and get more growth. Neither can you use the deficit to subsides a tax cut now, and expect enough growth to make up the difference. I.e. taxes must match spending, but the level of spending should be informed by the facts, one of which is that higher tax/spending will suppress long term growth.

Generally western Europe have taken the higher taxes/spending/lower growth route, whereas America has taken the lower tax/higher growth route. As a result US is considerably richer per capita than the UK, but has much poorer government services. Further, it is very probably that excessive healthcare spending is putting the drag on the American economy compared to socialised medicine in western Europe. Other than the immeadeate concern of the deficit, this is doubtless the most important issue facing the American economy. It is a reasonable goal for healthcare spending in the US to be reduced by a third in the next decade, this would in a lower standard of care, probably, but it would probably not have that much effect on overall outcomes. The second most important thing for americans to deal with, is their grotesque level of inequality, even by british standards.

[Rodney26]

PassedOut, on 2010-November-19, 10:40, said:

Recurring discussion:

Ideologue: The solution is cutting taxes.
Realist: It's not that simple.

Later--

Realist: Your tax cuts failed to solve the problem.
Ideologue: It's not that simple.

Rinse and repeat.

The problem being discussed in this thread is the US federal deficit. This problem cannot be solved solely by cutting taxes, all free lunch growth arguments notwithstanding.

It can only be solved by matching spending and taxes. Once the spending requirements are set (whether or not I agree with the wisdom of that spending), the taxes must be set to align with that spending.

Why does Phil have to be the ideologue and you the realist? Ever consider it is the other way around? Sure seems like it to me (especially when the tsk tsks start coming).

What you're missing is that governments can control three things -- what it taxes, the various rates of those taxes and its spending. They can't control revenues because ultimately that is based on the performance of the entire economy and various aspects of it. They are plenty of examples in history in the US and elsewhere where raising marginal tax rates did not increase government revenues. There are also examples where it did. The performance of the private sector always will vary and so will government revenues. You can say over and over that Bush's tax cuts caused the increase in the deficit but it simply isn't true. Bush's reckless overspending caused that, and Obama has been much worse. The solution is to spend less.

It amuses me to no end that people that point out this fact to you get accused of believing in a free lunch. However, those that believe we can add 40 million people to the health insurance rolls and reduce the deficit simultaneously are apparently "realists."

The US economy will not come back from the doldrums until it becomes much more productive and much less consumptive. There are 6 billion people on the earth and we need to make stuff for them; instead we run a huge trade deficit and are the world's biggest debtor nation. That's the essence of the problem.

[PassedOut]

Rodney26, on 2010-November-19, 12:29, said:

You can say over and over that Bush's tax cuts caused the increase in the deficit but it simply isn't true. Bush's reckless overspending caused that, and Obama has been much worse. The solution is to spend less.

No. The solution is to align spending and taxes. If congress succeeds in lowering spending below current tax collections, then cutting taxes will be great. I'm all for it.

But, so far as I can see, no politician is supporting the drastic spending cuts (9-10% of GDP) necessary to match current tax revenues. What is not cut must be made up with taxes. Otherwise future taxpayers will be buried under compounded debt service charges to the tune of $1 trillion per year for debt they had no part in creating.

Rodney26, on 2010-November-19, 12:29, said:

It amuses me to no end that people that point out this fact to you get accused of believing in a free lunch.

The free lunch argument I object to is the nonsense that the Bush tax cuts led to an increase in federal revenue. Phil denied that anyone on this board ever made such an argument, but he is wrong about that one also:

Rodney26, on 2010-November-01, 23:21, said:

Clinton never reduced spending, but he can be credited for keeping government spending on a steady path despite enhanced revenues for the dot-com bubble. I don't think there is a lot of evidence he was trying to pare down debt but he certainly was more fiscally responsible than Obama or Bush. I agree with the first two points on Bush, but the lower marginal rates resulted in more federal revenues, not less.

The Bush tax cuts took tax collections from almost 21% of GDP down to less than 17% of GDP, and the cratering caused by those cuts is responsible for most of the ballooning debt we face today. A lesser portion is due to unfunded spending increases. These are simply facts.

And it is a fact that the cratering of tax revenues did not produce the economic growth promised by the Bush free lunch crowd. Phil blames this on state governments, but state governments are separate and (for the most part) are required to balance their budgets.

Rodney26, on 2010-November-19, 12:29, said:

However, those that believe we can add 40 million people to the health insurance rolls and reduce the deficit simultaneously are apparently "realists."

Yes, requiring people to buy insurance to pay for the (unnecessarily expensive) care that they now get for nothing in emergency rooms -- subsidized by the rest of us -- is part of the solution to controlling healthcare costs. That is the realist position.

The free lunch crowd from 20 states is now petitioning the courts to recognize a constitutional "right to be a freeloader" to prevent Obama from restoring fiscal responsibility in healthcare.

The free lunch crowd is also fighting Obama's plans to cut unnecessary subsidies to Medicare Advantage plans. If one can't cut even that, how can we possibly cut spending enough to avoid tax increases?

[blackshoe]

All I know is, when I sit down to look at my budget, if the outgo exceeds the income, I have to do one of two things: reduce the outgo or increase the income. Also, I have found, now that I'm no longer twenty, that increasing the income by increasing my debt is in the long run a losing strategy, when the debt goes for non-appreciating assets, or worse, for expenses. I see no reason why these principles shouldn't apply to governments as well as to individuals.

[luke warm]

blackshoe, on 2010-November-19, 14:10, said:

All I know is, when I sit down to look at my budget, if the outgo exceeds the income, I have to do one of two things: reduce the outgo or increase the income. Also, I have found, now that I'm no longer twenty, that increasing the income by increasing my debt is in the long run a losing strategy, when the debt goes for non-appreciating assets, or worse, for expenses. I see no reason why these principles shouldn't apply to governments as well as to individuals.

but that's only for you... everyone knows that if you could just print money you'd be okay again... well, everybody in the administration's economics department... most of the rest of the world is a little skeptical, though

[kenberg]

Here is my proposal and I am dead serious about it.
Let all of the tax cuts expire.

The law was written (by Republicans and signed by a Republican president) so that they would expire, let the law take its course. The rates will return to something that was not all that awful. Really, the expiration should be seen as the status quo. It's what the Bush law stipulated would happen.

After they expire, then there can be discussion. If the Republicans wish then to cut taxes, let them explain what programs will be cut to balance the tax cuts. They have been getting a lot of political mileage out of railing against the budget deficit. Time to put up or shut up.

[hrothgar]

blackshoe, on 2010-November-19, 14:10, said:

All I know is, when I sit down to look at my budget, if the outgo exceeds the income, I have to do one of two things: reduce the outgo or increase the income. Also, I have found, now that I'm no longer twenty, that increasing the income by increasing my debt is in the long run a losing strategy, when the debt goes for non-appreciating assets, or worse, for expenses. I see no reason why these principles shouldn't apply to governments as well as to individuals.

Virtually everyone I know racks up significant amounts of debt in the early stages of their life investing in education.
They pay for this investment out of an increased income stream once they hit the job market.
There are a few folks who are lucky enough that mommy and daddy pay for everything, however, those numbers seem to be dropping rather precipitously.

Even if your analogy held true, its ridiculous to assume that the Federal government should behave like an individual.

Conventional economic wisdom holds that governments should engage in counter cyclical policies.

They should run deficits when the economy is slowing down...
They should run surpluses when the economy is overheating...

There are schools like the Chicago School that argue that this isn't effective. Lags prevent governments from being able to apply stimulus / contractionary policies at the right time. Rational Expectations proponents go so far as to suggest that government spending has no effect. I never found these arguments particularly convincing. I'd argue that strict proponents of the Chicago School are very much in the minority.

I think that everyone should be able to agree that a system where governments

1. Run deficits when the economy is in the toilet
2. Claim "Deficits don't matter" and cut taxes when the economy is doing well

is pathological...

Sadly, Republicans can't be trusted to do anything other than cut taxes.
Its their simple minded answer to cure everything from trade deficits to gout.

[hrothgar]

luke warm, on 2010-November-19, 17:08, said:

but that's only for you... everyone knows that if you could just print money you'd be okay again... well, everybody in the administration's economics department... most of the rest of the world is a little skeptical, though

That's a pretty severe overstatement...

The Germans and the Chinese have expressed deep reservations about US monetary policy. However, their own internal polices belie these claims

Both China and Germany have engaged in very significant increases in government spending since the start of the Great Recession. They're both following very Keynsian policies. I suspect that their public statements primarily reflect:

1. Chinese fears that US monetary policy will push down the dollar, making exports more difficult and devaluing Chinese dollar reserves
2. Germany's traditional (post Weimar) fear of inflation

I do agree that the Brits are following a very different policy.
It will be interesting to see how their austerity measures impact the economy.

[Winstonm]

I fundamentally disagree with Bernanke and the Federal Reserve's use of quantatative easing in an attempt to stimuluate the economy.

First off, the problem is not so much one of unavailability of money and credit, but a lack of motivation to borrow to spend. The only people looking to borrow for consumption are the 9 1/2 million people out of work, and lending to those types is how we got here in the first place.

Secondly, reliance of the wealth factor of artificially inflated stock prices affects too few of the working class to make any difference - funding stock purchases only again increases the wealth of the upper tiered classes. This is simply hoping that trickle-down economics, after 30-some years of showing intself ineffective and a scam, will somehow work because the fed is causing the trickle.

Third, quantitative easing initially benefits the banks. The banks are not a source of jobs. Investment is the source of jobs.

In my opinion, fighting deflation can never lead to a permament cure because this deflation is necessary to rectify the imbalances of 30-something years of productivity gains hoarded by the wealthiest by way of government policy. We tried to solve this gap by providing credit - but credit is not the equal of wage increases.

Either deflation will cure this imbalance, regardless of what the Fed does, or wage increases will bring about a parity with the percentage of productivity increase lost over time. If the Fed fights too hard, it could cause a insoluable morass that would make Japan's lost decade seem like a catnap compared to Rip Van Winkle's repose.

[kenberg]

My main disagreement with quantitative easing, other than its silly name, is that it promulgates the idea that our elected officials can all act like a bunch of idiots since the Fed is Superman and will come to our rescue.

[mike777]

"am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.
Interview by John Hawkins (16 September 2003)
There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income."



http://en.wikiquote....Milton_Friedman

[kenberg]

Did Mr. Hawkins address the Bush approach of cutting taxes and increasing spending?

This could be called the fifth way of spending money. You spend more, and you tax less. It's great while it lasts.

[mike777]

kenberg, on 2010-November-19, 21:13, said:

Did Mr. Hawkins address the Bush approach of cutting taxes and increasing spending?

This could be called the fifth way of spending money. You spend more, and you tax less. It's great while it lasts.

To be fair, Congress votes on spending...Iknow we forget that.

People outside the usa may think Bush or any president governs by fiat.

[Winstonm]

kenberg, on 2010-November-19, 20:13, said:

My main disagreement with quantitative easing, other than its silly name, is that it promulgates the idea that our elected officials can all act like a bunch of idiots since the Fed is Superman and will come to our rescue.

Yes, we should call it by its true name - attempted inflation.

[mike777]

Winstonm, on 2010-November-19, 21:53, said:

Yes, we should call it by its true name - attempted inflation.

I cant find the quote rats...but.....basically, random Q2=random results..and (2) inflation does not create jobs....i have a bias about jobs...

---------------


OTOH....if deflation is the main worry ( we can debate this, bad banks )....yes.....inflate.....